Legislature(2017 - 2018)SENATE FINANCE 532

05/12/2017 09:00 AM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 111 OIL & GAS PRODUCTION TAX;PAYMENTS;CREDITS TELECONFERENCED
Moved SCS CSHB 111(FIN) Out of Committee
+= SB 34 DRIVER'S LICENSE & ID CARDS & REAL ID ACT TELECONFERENCED
Moved CSSB 34(FIN) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
                 SENATE FINANCE COMMITTEE                                                                                       
                       May 12, 2017                                                                                             
                        10:06 a.m.                                                                                              
                                                                                                                                
10:06:05 AM                                                                                                                   
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair  MacKinnon  called  the  Senate  Finance  Committee                                                                    
meeting to order at 10:06 a.m.                                                                                                  
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Lyman Hoffman, Co-Chair                                                                                                 
Senator Anna MacKinnon, Co-Chair                                                                                                
Senator Click Bishop, Vice-Chair                                                                                                
Senator Shelley Hughes                                                                                                          
Senator Peter Micciche                                                                                                          
Senator Donny Olson                                                                                                             
Senator Natasha von Imhof                                                                                                       
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Leslie   Ridle,    Deputy   Commissioner,    Department   of                                                                    
Administration; Juli  Lucky, Staff, Senator  Anna MacKinnon;                                                                    
Minta Montalbo, Department  of Administration, Juneau; Laura                                                                    
Cramer,  Staff, Senator  Anna  MacKinnon;  Ed King,  Special                                                                    
Assistant,  Department of  Natural Resources;  Senator Cathy                                                                    
Giessel; Ken  Alper, Director,  Tax Division,  Department of                                                                    
Revenue.                                                                                                                        
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Michael  Stanker,   Department  of  Law,   Anchorage;  Marla                                                                    
Thompson, Director,  Division of Motor  Vehicles, Department                                                                    
of Administration.                                                                                                              
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
SB 34     DRIVER'S LICENSE & ID CARDS & REAL ID ACT                                                                             
                                                                                                                                
          CSSB 34(FIN) was REPORTED out of committee with a                                                                     
          "no recommendation" and with one new fiscal                                                                           
          impact    note    from     the    Department    of                                                                    
          Administration,   and   with      two   previously                                                                    
          published zero fiscal notes: FN2(MVA), FN3(DPS).                                                                      
                                                                                                                                
CSHB 111(FIN)(EFD FLD)                                                                                                          
          OIL & GAS PRODUCTION TAX;PAYMENTS;CREDITS                                                                             
                                                                                                                                
          SCS CSHB  111(FIN) was  REPORTED out  of committee                                                                    
          with  a  "do  pass" recommendation  and  with  one                                                                    
          forthcoming   fiscal   impact    note   from   the                                                                    
          Department of Revenue.                                                                                                
                                                                                                                                
SENATE BILL NO. 34                                                                                                            
                                                                                                                                
     "An Act  relating to the implementation  of the federal                                                                    
     REAL  ID  Act of  2005;  and  relating to  issuance  of                                                                    
     identification   cards  and   driver's  licenses;   and                                                                    
     providing for an effective date."                                                                                          
                                                                                                                                
10:06:32 AM                                                                                                                   
                                                                                                                                
Co-Chair  MacKinnon  relayed  that  there was  a  letter  of                                                                    
explanation from the Department  of Administration dated May                                                                    
11,  2017 (copy  on file).  The  letter was  in response  to                                                                    
questions from the committee.                                                                                                   
                                                                                                                                
10:07:16 AM                                                                                                                   
                                                                                                                                
LESLIE   RIDLE,    DEPUTY   COMMISSIONER,    DEPARTMENT   OF                                                                    
ADMINISTRATION,  discussed  the aforementioned  letter  from                                                                    
the   department.   She   explicated  that   the   questions                                                                    
concerning the  process of obtaining  a driver's  license or                                                                    
identification.  She stated  that  Alaskans  would not  need                                                                    
anything  new  in  order  to obtain  Real  I.D.  The  change                                                                    
involved  verification   of  the  proof  of   identity.  The                                                                    
division  was a  member  of AAMVA  [American Association  of                                                                    
Motor Vehicle  Administrators]. The system ensured  that the                                                                    
applicant only  carried one driver's  license. The  DMV from                                                                    
other states  cannot access documents  on the  state system.                                                                    
Documents are not shared with  other entities, other than to                                                                    
check for  pre-existing driver's  licenses in  other states.                                                                    
For this  process, the  name, date of  birth, and  last four                                                                    
digits   of  the   social   security   number  (SSN).   Some                                                                    
information  was  shared  via subpoena  with  Department  of                                                                    
Public Safety for the purposes  of working on cold cases and                                                                    
I.D. fraud.                                                                                                                     
                                                                                                                                
10:11:04 AM                                                                                                                   
                                                                                                                                
Co-Chair  MacKinnon asked  if all  states had  "one driver's                                                                    
license in  one state" rule,  or whether that was  a federal                                                                    
law.                                                                                                                            
                                                                                                                                
Ms. Ridle informed that all states  had the rule but that it                                                                    
was a federal law.                                                                                                              
                                                                                                                                
10:11:37 AM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
10:31:44 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair MacKinnon MOVED to ADOPT Amendment 1:                                                                                  
                                                                                                                                
     Page 3, line 5, following "15 years"                                                                                       
     Delete "after the expiration of the identification                                                                         
     card"                                                                                                                      
     Insert "after the date of application"                                                                                     
                                                                                                                                
     Page 3, line 8, following "retain"                                                                                         
     Insert "only"                                                                                                              
                                                                                                                                
     Page 6, line 8, following "years"                                                                                          
     Delete "after the expiration of the license"                                                                               
     Insert "after the date of application"                                                                                     
                                                                                                                                
     Page 6, line 10, following "retain"                                                                                        
     Insert "only"                                                                                                              
                                                                                                                                
Vice-Chair Bishop OBJECTED for discussion.                                                                                      
                                                                                                                                
JULI  LUCKY,   STAFF,  SENATOR  ANNA   MACKINNON,  explained                                                                    
Amendment  1.  She detailed  that  the  amendment should  be                                                                    
starting on page 3, line 5  and the last change should be on                                                                    
page  6, line  10.  These were  technical  fixes within  the                                                                    
bill.  She  specified that it was always the  intent to have                                                                    
a 15-year retention period;  however, currently it contained                                                                    
a retention period  ending after the date  of the expiration                                                                    
of  the  I.D.   card,  which  would  have   been  23  years.                                                                    
Additional    changes    specified   that    only    minimum                                                                    
documentation was required.                                                                                                     
                                                                                                                                
Vice-Chair Bishop WITHDREW his OBJECTION. There being NO                                                                        
OBJECTION, Amendment 1 was ADOPTED.                                                                                             
                                                                                                                                
10:33:30 AM                                                                                                                   
                                                                                                                                
Co-Chair MacKinnon MOVED to ADOPT Amendment 2.                                                                                  
                                                                                                                                
Vice-Chair Bishop OBJECTED for discussion.                                                                                      
                                                                                                                                
Ms. Lucky explained Amendment 2:                                                                                                
                                                                                                                                
     The  intent  of  this  amendment   is  to  require  the                                                                    
     department, should  attempts to discontinue use  of the                                                                    
     social  security   number  as  a  means   of  verifying                                                                    
     identity in order to comply  with federal law requiring                                                                    
     that states  confirm that an applicant  is not licensed                                                                    
     to  drive  in another  state,  to  work to  reduce  the                                                                    
     number  of   digits  of  the  social   security  number                                                                    
     required  and to  limit the  department to  sharing the                                                                    
     minimum   number  of   digits   required,  instead   of                                                                    
     specifying a number of digits.                                                                                             
                                                                                                                                
     Page 4, line 19, following "steps"                                                                                         
          Delete "necessary"                                                                                                    
          Insert "available"                                                                                                    
                                                                                                                                
     Page 4, line 29 through page 5, line 8                                                                                     
          Delete all material                                                                                                   
          Insert "(d) If the department has complied with                                                                       
     (b) and (c)  of this section and been  unable to secure                                                                    
     a  means of  compliance  with P.L.  109-13, Division  B                                                                    
     (REAL  ID  Act  of  2005) that  does  not  involve  the                                                                    
     storage  or  sharing  of social  security  numbers,  in                                                                    
     whole or in  part, the department shall  take all steps                                                                    
     necessary to minimize the number  of digits of a social                                                                    
     security= number required to be stored or shared.                                                                          
                                                                                                                                
     (e)  The  department may  not  share  more than  fewest                                                                    
     number of  digits of a person's  social security number                                                                    
     necessary  to comply  with  federal  law requiring  the                                                                    
     department  to  determine  whether a  person  has  been                                                                    
     issued a driver's license in another state."                                                                               
                                                                                                                                
Ms. Lucky  elaborated that there had  been concern expressed                                                                    
regarding  the  digits  from  a   SSN  for  verification  of                                                                    
identity. The amendment would limit  the use to three digits                                                                    
of the  SSN. She  continued that  the amendment  would allow                                                                    
for use of  the fewest digits. Consistent  with the language                                                                    
in the  bill, the amendment  directed the department  to try                                                                    
not to  use the SSN. The  new provision would state  that if                                                                    
the department  was unsuccessful  in not  using the  SSN, it                                                                    
should take  all steps to  minimize the number  required and                                                                    
use the  fewest number  of digits  required. She  added that                                                                    
this would be adopted as a conceptual amendment.                                                                                
                                                                                                                                
Senator Micciche asked  if Ms. Lucky had  the opportunity to                                                                    
discuss  the amendments  with  the  department to  determine                                                                    
whether  the amendment  compromised  its  ability to  comply                                                                    
with Real I.D.                                                                                                                  
                                                                                                                                
Ms.  Lucky relayed  that she  had  discussed the  amendments                                                                    
with the department, and they were available to confirm.                                                                        
                                                                                                                                
10:36:27 AM                                                                                                                   
                                                                                                                                
MICHAEL   STANKER,  DEPARTMENT   OF   LAW,  ANCHORAGE   (via                                                                    
teleconference),   testified  that   he  had   reviewed  the                                                                    
conceptual  amendment. He  did not  see any  issue with  the                                                                    
amendment.                                                                                                                      
                                                                                                                                
                                                                                                                                
Ms.  Ridle  stated that  conceptual  Amendment  2 would  not                                                                    
affect compliance with Real I.D.                                                                                                
                                                                                                                                
Senator  Micciche  thanked  Ms.   Ridle  for  supplying  the                                                                    
document to the committee.                                                                                                      
                                                                                                                                
                                                                                                                                
Vice-Chair  Bishop WITHDREW  his OBJECTION.  There being  NO                                                                    
OBJECTION, conceptual Amendment 2 was ADOPTED.                                                                                  
                                                                                                                                
Vice-Chair  Bishop discussed  two  zero  fiscal notes,  FN2,                                                                    
Department of  Military and Veterans Affairs,  OMB component                                                                    
number  2657;  and FN3,  Department  of  Public Safety,  OMB                                                                    
component number  523. He stated  that the  department would                                                                    
be providing a new fiscal note.                                                                                                 
                                                                                                                                
Ms. Lucky  commented that  the Department  of Administration                                                                    
(DOA) fiscal  note no longer  applied. The  department would                                                                    
be providing a new fiscal note.                                                                                                 
                                                                                                                                
10:39:30 AM                                                                                                                   
                                                                                                                                
MINTA  MONTALBO,   DEPARTMENT  OF   ADMINISTRATION,  JUNEAU,                                                                    
explained that the  fiscal note would be  updated to reflect                                                                    
the reduction  in cost  because the  CS from  [Senate] State                                                                    
Affairs  required the  cards to  be  produced in-state.  The                                                                    
requirement was  not in the  present version of the  bill so                                                                    
would be removed. There would  be increase in revenue due to                                                                    
a fee  increase in the current  version from $15 to  $20 for                                                                    
compliant driver's licenses.                                                                                                    
                                                                                                                                
10:40:24 AM                                                                                                                   
                                                                                                                                
Senator  Hughes  asked if  Ms.  Montalbo  was aware  of  any                                                                    
discussion  across   the  states  to  members   of  Congress                                                                    
regarding federal funding for the initiative.                                                                                   
                                                                                                                                
Ms. Montalbo was not aware  of any funds coming forward. The                                                                    
division had been working  with the congressional delegation                                                                    
but had not heard of any funds being made available.                                                                            
                                                                                                                                
Co-Chair  MacKinnon  asked  if  there was  going  to  be  an                                                                    
unforeseen  cost to  the state  as a  result of  passing the                                                                    
bill.                                                                                                                           
                                                                                                                                
Ms. Montalbo explained that the  costs were reflected in the                                                                    
current  fiscal  note  and  would remain  the  same  in  the                                                                    
forthcoming  fiscal note.  The  $1.5 million  implementation                                                                    
cost would remain the same.                                                                                                     
                                                                                                                                
Co-Chair  MacKinnon   referred  to  the  $1.5   million  and                                                                    
verified  that  was  for  improvements  in  technology.  Ms.                                                                    
Montalbo replied in  the affirmative. She added  that it was                                                                    
a one-time cost to update their systems.                                                                                        
                                                                                                                                
Co-Chair  MacKinnon asked  about  additional positions.  Ms.                                                                    
Montalbo stated no new positions would be needed.                                                                               
                                                                                                                                
Co-Chair  MacKinnon asked  if the  committee could  expect a                                                                    
fiscal note  with zero expenditures for  operating costs and                                                                    
a  one-time   capital  appropriation  for  the   upgrade  in                                                                    
technology.                                                                                                                     
                                                                                                                                
Ms.  Montalbo stated  that there  was an  ongoing production                                                                    
cost to  make the  compliant cards  of approximately  $5 per                                                                    
card. There would  be an increase in  receipt authority, and                                                                    
in FY  19 there would be  a $528.7 thousand in  the services                                                                    
line of  the fiscal note.  That was anticipated  to increase                                                                    
in out years.                                                                                                                   
                                                                                                                                
Co-Chair MacKinnon expected that  the revenues collected for                                                                    
the program  would exceed the  costs. Ms.  Montalbo answered                                                                    
in the affirmative.                                                                                                             
                                                                                                                                
Co-Chair  MacKinnon asked  if there  was a  need to  rewrite                                                                    
regulation. Ms. Montalbo answered in the affirmative.                                                                           
                                                                                                                                
10:43:31 AM                                                                                                                   
                                                                                                                                
Co-Chair MacKinnon asked if DMV  would absorb that cost. Ms.                                                                    
Montalbo replied in the affirmative.                                                                                            
                                                                                                                                
Co-Chair MacKinnon  asked whether there would  be additional                                                                    
fiscal  notes.  Ms.  Montalbo replied  there  should  be  no                                                                    
additional fiscal notes.                                                                                                        
                                                                                                                                
MARLA  THOMPSON,  DIRECTOR,   DIVISION  OF  MOTOR  VEHICLES,                                                                    
DEPARTMENT  OF ADMINISTRATION  (via teleconference),  stated                                                                    
that  everything  mentioned  would  be  in  the  forthcoming                                                                    
fiscal note.                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon  asked if DMV  would issue a  zero fiscal                                                                    
note on  the operational cost  side and on the  capital cost                                                                    
side. Ms.  Thompson stated that  those would be on  the same                                                                    
fiscal note.                                                                                                                    
                                                                                                                                
Co-Chair clarified there would be  no additional note to the                                                                    
one submitted by DOA.                                                                                                           
                                                                                                                                
Vice-Chair  Bishop  MOVED  to report  CSSB  34(FIN)  out  of                                                                    
Committee   with   individual    recommendations   and   the                                                                    
accompanying and  forthcoming fiscal  notes. There  being NO                                                                    
OBJECTION, it was so ordered.                                                                                                   
                                                                                                                                
CSSB  34(FIN)  was REPORTED  out  of  committee with  a  "no                                                                    
recommendation"  and with  one new  fiscal impact  note from                                                                    
the Department  of Administration, and with   two previously                                                                    
published zero fiscal notes: FN2(MVA), FN3(DPS).                                                                                
                                                                                                                                
10:45:16 AM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
10:47:17 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair MacKinnon stated that the committee would be                                                                           
recessed to a call of the chair and would take up HB 111 in                                                                     
the afternoon.                                                                                                                  
                                                                                                                                
10:48:06 AM                                                                                                                   
RECESSED                                                                                                                        
                                                                                                                                
3:07:34 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
CS FOR HOUSE BILL NO. 111(FIN)(efd fld)                                                                                       
                                                                                                                                
     "An Act  relating to  the oil  and gas  production tax,                                                                    
     tax  payments,   and  credits;  relating   to  interest                                                                    
     applicable to  delinquent oil  and gas  production tax;                                                                    
     relating  to carried-forward  lease expenditures  based                                                                    
     on losses  and limiting those lease  expenditures to an                                                                    
     amount  equal  to  the  gross value  at  the  point  of                                                                    
     production of  oil and gas  produced from the  lease or                                                                    
     property  where  the  lease expenditure  was  incurred;                                                                    
     relating to  information concerning tax  credits, lease                                                                    
     expenditures, and  oil and gas  taxes; relating  to the                                                                    
     disclosure of that information  to the public; relating                                                                    
     to an  adjustment in  the gross value  at the  point of                                                                    
     production;  and  relating  to  a  legislative  working                                                                    
     group."                                                                                                                    
                                                                                                                                
3:08:21 PM                                                                                                                    
                                                                                                                                
Vice-Chair Bishop MOVED to ADOPT proposed committee                                                                             
substitute for CSHB 111(FIN), Work Draft 30-LS0450\V                                                                            
(Nauman, 5/12/17).                                                                                                              
                                                                                                                                
Co-Chair MacKinnon OBJECTED for discussion.                                                                                     
                                                                                                                                
LAURA CRAMER, STAFF, SENATOR ANNA MACKINNON, reviewed the                                                                       
document "Summary of changes from Version B to Version V,"                                                                      
(copy on file):                                                                                                                 
                                                                                                                                
     Substantive change:                                                                                                        
        · Section 27: Subsection (n) of Version B was                                                                           
          removed in Version V. This is reflected on page                                                                       
          18, where the former subsection (o) is now                                                                            
          subsection (n).                                                                                                       
                                                                                                                                
          The  former  subsection  (n)  allowed  half  of  a                                                                    
          carry-forward loss  from a  new development  to be                                                                    
          applied   immediately   against   the   taxpayer's                                                                    
          liability,   with  the   remaining  half   carried                                                                    
          forward until the  development entered production.                                                                    
          This change aligns the CS with current statute.                                                                       
                                                                                                                                
          The   change   in   Section  27   necessitated   a                                                                    
          conforming  change which  removed  section 1  from                                                                    
          the   previous  version,   on  page   1.  Removing                                                                    
          subsection  (n)  also  removes the  need  for  the                                                                    
          Alaska  Oil  and  Gas Conservation  Commission  to                                                                    
          determine the start of  regular production for the                                                                    
          purposes of (n).                                                                                                      
                                                                                                                                
     Technical changes:                                                                                                         
        · Section 5, Page 4, lines 4-5 of Version V:                                                                            
          changes "for a credit  for work performed" to "for                                                                    
          a credit  for a lease expenditure  incurred." This                                                                    
          language is consistent with existing statute.                                                                         
                                                                                                                                
        · Section 6, Page 4, lines 22-23 of Version V:                                                                          
          makes  the  same  change  from  Section  5,  which                                                                    
          repeals that language in the  future to conform to                                                                    
          the future  repeal of the  Oil and Gas  Tax Credit                                                                    
          Fund.                                                                                                                 
                                                                                                                                
        · Section 20, Page 14, line 29 and lines 30-31 of                                                                       
          Version  V:  Changes  "for work  performed  before                                                                    
          Jan.  1, 2018,"  to "for  an expenditure  incurred                                                                    
          before Jan. 1, 2018."  This language is consistent                                                                    
          with existing statute.                                                                                                
                                                                                                                                
        · Section 23, Page 16, line 24: Changed "the" to                                                                        
          "that" before "calendar year."                                                                                        
                                                                                                                                
        · Section 27, Page 18, line 26: Changes "or carry                                                                       
          it  forward"  to  "or  carry  any  unused  portion                                                                    
          forward."                                                                                                             
                                                                                                                                
        · Section 27, Page 19, lines 2-3: adds "before the                                                                      
          application of any credits  under this chapter" to                                                                    
          further clarify  the intent of the  provision. The                                                                    
          intent  is   that,  when   applying  carry-forward                                                                    
          annual losses,  they need only be  applied, at the                                                                    
          taxpayer's discretion,  to the point at  which the                                                                    
          tax due is the equivalent of the minimum tax                                                                          
          before the application of any other credits to                                                                        
          the minimum tax.                                                                                                      
                                                                                                                                
        · Section 31, Page 19, line 19: Changed "regardless                                                                     
          of when the  credit was earned or  issued" to "for                                                                    
          work  performed  on  or after  July  1,  2016"  to                                                                    
          accurately   reflect   the   bill   sections   the                                                                    
          applicability addresses.                                                                                              
                                                                                                                                
3:12:22 PM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon  WITHDREW her  OBJECTION. There  being NO                                                                    
OBJECTION,  the Senate  CS for  CSHB 111(FIN) Version  V was                                                                    
ADOPTED.                                                                                                                        
                                                                                                                                
3:13:07 PM                                                                                                                    
                                                                                                                                
Co-Chair  MacKinnon mentioned  testimony from  taxpayers and                                                                    
asked  whether there  was an  issue regarding  a backlog  in                                                                    
Department of Natural Resources (DNR).                                                                                          
                                                                                                                                
ED   KING,   SPECIAL   ASSISTANT,  DEPARTMENT   OF   NATURAL                                                                    
RESOURCES,  acknowledged   that  there  was  a   backlog  in                                                                    
processing  seismic data  in  the  department. He  recounted                                                                    
that  following the  passage  of  SB 21,  there  had been  a                                                                    
drastic  increase in  seismic  activity  to recover  credits                                                                    
being offered.  This was  largely due to  the change  in the                                                                    
bill language  regarding net  operating loss  credits moving                                                                    
to   45  percent   and  stacked   to  the   40  percent   in                                                                    
AS 43.55.025(a)(4),  allowing  a  total  of  85  percent  of                                                                    
expenses to  be turned into  credits. That  led to a  lot of                                                                    
new seismic data sets since the passage of HB 185 in 2003.                                                                      
                                                                                                                                
Co-Chair  MacKinnon  asked  if  Mr. King  could  provide  an                                                                    
estimate of the magnitude of the change.                                                                                        
                                                                                                                                
Mr. King provided that half a  terabyte or less for the last                                                                    
ten years,  or until  2013, when the  increase was  seen. He                                                                    
informed that  the department had  gone from 1  terabyte per                                                                    
year to 250 terabytes in the  previous year, and in 2017 the                                                                    
department  had received  277 terabytes.  This equated  to a                                                                    
backlog  of 450  terabytes  of data,  or  the equivalent  of                                                                    
processing 400 applications.                                                                                                    
                                                                                                                                
Co-Chair MacKinnon  stated that  it had been  suggested that                                                                    
the  committee consider  a timeline  in statute  for DNR  to                                                                    
certify  the  data. She  asked  how  that would  impact  the                                                                    
process.                                                                                                                        
                                                                                                                                
Mr.  King stated  that  it was  not  physically possible  to                                                                    
process the  data sets  in the  recommended timeline  of 120                                                                    
days. He estimated that it would  take two to three years to                                                                    
process the data. He thought  the most recent version of the                                                                    
bill  repealed  the  credit,  and they  did  not  expect  to                                                                    
receive similar amounts of data in the future.                                                                                  
                                                                                                                                
3:17:07 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Bishop  asked  whether  it  was  a  question  of                                                                    
updating the technology.                                                                                                        
                                                                                                                                
Mr. King answered in the  affirmative. He continued that the                                                                    
IT department  had worked  to the  limits of  the technology                                                                    
available. He  also indicated updating  further would  be an                                                                    
expensive change for a temporary problem.                                                                                       
                                                                                                                                
Vice-Chair  Bishop wondered  if the  department could  reach                                                                    
out to the University of  Alaska Fairbanks, to aid them with                                                                    
their computer systems.                                                                                                         
                                                                                                                                
Co-Chair Mackinnon recognized that  Senator Olson had joined                                                                    
the committee  and recognized Senator  Cathy Giessel  in the                                                                    
audience.                                                                                                                       
                                                                                                                                
3:18:40 PM                                                                                                                    
                                                                                                                                
Senator Hughes wondered what happened  after the process was                                                                    
finished.  She understood  that  there was  also a  time-lag                                                                    
after  the   data  returned  to   DOR.  She  asked   for  an                                                                    
explanation of what was sent to DOR.                                                                                            
                                                                                                                                
Mr. King  pointed out that  part of  the DNR process  was to                                                                    
certify data  that was submitted.  The credit  required that                                                                    
the relevant data be sent  to the state. The department held                                                                    
that  data  confidential  for  ten years  and  then  it  was                                                                    
released to the public. When  the original bill creating the                                                                    
credit was  introduced, the  department had  not anticipated                                                                    
the  problem. He  stated that  some of  the data  files were                                                                    
corrupted files and  the department began in 2012  to take a                                                                    
closer look  at the  data provided to  them. He  deferred to                                                                    
the Department of Revenue for its process.                                                                                      
                                                                                                                                
3:20:48 PM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon asked about  the timeframe on the backlog                                                                    
of seismic  data. She asked  whether it would take  10 years                                                                    
to  catch up  and inform  the taxpayers  of what  they could                                                                    
expect.                                                                                                                         
                                                                                                                                
Mr.  King   stated  that  the   department  would   work  as                                                                    
expeditiously  as  possible  with the  given  resources.  He                                                                    
thought  the  three  to  five-year   time  window  was  more                                                                    
realistic.                                                                                                                      
                                                                                                                                
3:22:01 PM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon  referred to a  new fiscal note  from DOR                                                                    
(OMB component 2476), and mentioned  that the CS adopted was                                                                    
what  was needed  to remove  cash credits  and no  more. She                                                                    
stated a belief  in the current tax system  and remarked the                                                                    
50/50 change  in the  status quo was  unrelated to  the cash                                                                    
credits  and was  removed to  maintain focus  on eliminating                                                                    
cash credits.                                                                                                                   
                                                                                                                                
KEN ALPER,  DIRECTOR, TAX  DIVISION, DEPARTMENT  OF REVENUE,                                                                    
stated  that there  was no  change  to the  fiscal note.  He                                                                    
stated there were  three components to the  fiscal note: one                                                                    
looked at  the impact on  state revenues, the second  on the                                                                    
state's obligation  to pay  for tax  credits, and  the third                                                                    
component was  tracking of the carry  forward volumes, where                                                                    
the expenditures  turned into  value that  could be  used to                                                                    
offset future  taxes. The  ring-fence provision  was removed                                                                    
and  did not  affect  the assumptions  in  the fiscal  note.                                                                    
There were  some concerns  with the  change, but  those were                                                                    
outside  the scope  of the  current  discussion. The  fiscal                                                                    
note in the previous committee  contained a version in which                                                                    
specific credits  could be used  below the minimum  tax that                                                                    
lead to  a negative revenue  item of roughly $20  million to                                                                    
$40 million  per year.  The "V"  version of  the bill  had a                                                                    
much smaller  number, typically a  negative $5 million  to a                                                                    
negative  $10 million.  It was  not  the kind  of number  he                                                                    
would  consider material  because the  value was  the mirror                                                                    
image  of savings  that would  otherwise be  given out  in a                                                                    
cash credit. In  the status quo, a certain  amount of Middle                                                                    
Earth credits (approximately $10  million per year) would be                                                                    
cashed  out  and now  could  be  transferred to  some  other                                                                    
producer  or  would  be  used  to  offset  a  company's  own                                                                    
corporate income tax.                                                                                                           
                                                                                                                                
3:25:41 PM                                                                                                                    
                                                                                                                                
Mr. Alper continued that the second  half had to do with the                                                                    
budget side, or the reduction  to the state's expectation of                                                                    
buying credits.  That is  almost fully  zeroed out  once the                                                                    
existing  backlog  of  credits  works its  way  through  the                                                                    
system.  There  would  be   reductions  in  expenditures  of                                                                    
roughly $150  million per  year after a  few years.  The sum                                                                    
total of the  reduced expenditures was $1.3  billion to $1.4                                                                    
billion,  seen migrating  to below  the line.  That was  the                                                                    
future tax  offset value that  companies would have  in hand                                                                    
as  they  would now  be  carrying  expenditures forward.  He                                                                    
underlined that this was a  universe of $3.7 billion to $3.8                                                                    
billion  of  forecast spending  that  would  be turned  into                                                                    
carry  forwards.  Those  carry  forwards would  be  used  to                                                                    
offset at  statutory rate of  35 percent. The  prior version                                                                    
of the bill  had a line for 2027 of  $1.785 billion but that                                                                    
number  contained   a  $460  million  uplift,   or  interest                                                                    
provision,  component  that  had  since  been  removed.  The                                                                    
current  bill was  $1.445 billion,  or $120  million higher.                                                                    
One part  had to do  with clarifying language saying  that a                                                                    
company  carrying  forward  their lease  expenditures  could                                                                    
only use them to reduce the  value to the number that led to                                                                    
the floor  after using other  credits. Whereas  the [Senate]                                                                    
Resources Committee version  would have led to  some loss of                                                                    
per barrel credits,  that adds about $60  million in credits                                                                    
being carried forward. The additional  60 million was due to                                                                    
the scope of  carry forwards to include  Middle Earth. There                                                                    
were estimated to be $60  million in carry forwards over the                                                                    
ten year fiscal note period.                                                                                                    
                                                                                                                                
3:28:24 PM                                                                                                                    
                                                                                                                                
Senator  von Imhof  wanted to  fully understand  Mr. Alper's                                                                    
remarks.  She paraphrased  a portion  of Section  27 of  the                                                                    
bill [language taken from version Q on BASIS]:                                                                                  
                                                                                                                                
     A taxpayer may apply in  that year equal to that amount                                                                    
     combined   with    lease   expenditures    before   the                                                                    
     application of  any credits under  this chapter  to the                                                                    
     equivalent of the tax due.                                                                                                 
                                                                                                                                
                                                                                                                                
     ""                                                                                                                         
                                                                                                                                
Senator von  Imhof asked  Mr. Alper  to repeat  his comments                                                                    
about interaction between carry  forward NOLs and per barrel                                                                    
credits,  in   particular  the  sliding  scale   per  barrel                                                                    
credits.                                                                                                                        
                                                                                                                                
Mr.  Alper   stated  that  under  current   law,  companies'                                                                    
expenditures  were  used  to their  taxable  value.  The  35                                                                    
percent tax  calculation was applied  to that, then  the per                                                                    
barrel credit  was subtracted. By introducing  carry forward                                                                    
lease expenditures into  the mix, the value  that is subject                                                                    
to the 35 percent tax  is reduced. The Senate Resources bill                                                                    
said  that the  carry forwards  were  applied to  lead to  a                                                                    
calculation where the 35 percent  of net was equivalent to 4                                                                    
percent  of  gross. It  was  the  amount  that lead  to  the                                                                    
minimum   tax.  However,   it  did   not  account   for  the                                                                    
possibility that, without the  addition of carry forwards, a                                                                    
company could use  some amount of per barrel  credits to get                                                                    
to the minimum tax calculation.  By wording it this way, the                                                                    
CS allowed  the company  to choose the  amount it  wanted to                                                                    
carry forward, and thereby minimize  the amount of the carry                                                                    
forward to  preserve the ability  to use the  carry forwards                                                                    
in a  non-carry forward  scenario. In a  lifecycle analysis,                                                                    
it meant  the company  was able to  preserve some  amount of                                                                    
them  to use  in a  subsequent year  and be  used to  offset                                                                    
another year's taxes.  The bottom line was that  it added up                                                                    
to  about  $60 million  in  tax  equivalent value  over  the                                                                    
course of the present fiscal note.                                                                                              
                                                                                                                                
3:30:57 PM                                                                                                                    
                                                                                                                                
Senator Hughes referred  to the chart on the  fourth page of                                                                    
the fiscal  note and  remarked that  due to  inflation, that                                                                    
$1.445  billion  would be  worth  less.  She confirmed  that                                                                    
there was nothing to account for inflation.                                                                                     
                                                                                                                                
Mr. Alper concurred, and stated  that the sum total value of                                                                    
the tax  benefit to companies  would be the same  before and                                                                    
after  the passage  of  the  bill, but  the  state would  be                                                                    
benefitting from the time value of money.                                                                                       
                                                                                                                                
Senator Micciche asked  if the difference in  the time value                                                                    
of money was reflected in the total revenue impact.                                                                             
                                                                                                                                
Mr.  Alper  replied in  the  negative.  He stated  that  the                                                                    
revenue impact was relatively minor.  He used the example of                                                                    
a  company that  was carrying  forward a  lease expenditure,                                                                    
and  the related  project coming  into production.  It would                                                                    
show as  a slight tax  reduction in  the fiscal note  as the                                                                    
company  was  applying  the  carry  forwards  against  their                                                                    
taxes. That  would not have been  seen in the status  quo as                                                                    
those would have been paid out in credits.                                                                                      
                                                                                                                                
Senator  Micciche   asked  if   the  difference   was  worth                                                                    
attempting to  capture in the  budget section of  the fiscal                                                                    
note.                                                                                                                           
                                                                                                                                
Mr. Alper stated that the  budget impact was far larger than                                                                    
the revenue  impact. Some  small portion  of the  impact was                                                                    
migrating to the revenue side.                                                                                                  
                                                                                                                                
Senator  Micciche  was  attempting to  understand  the  time                                                                    
value shift from cash payment to carry forwards.                                                                                
                                                                                                                                
Mr.  Alper stated  that  had  those been  paid  out in  cash                                                                    
credits over  10 years, the  credits would have been  in the                                                                    
hundreds  of millions  of  dollars. Looking  at  all of  the                                                                    
carry   forwards,   the   state's  expense   in   2028   was                                                                    
significantly lower  than what would  have been paid  out in                                                                    
the intervening  years. It  was a  material savings  for the                                                                    
state.                                                                                                                          
                                                                                                                                
3:34:45 PM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon asked if the  administration was in favor                                                                    
of the CS.                                                                                                                      
                                                                                                                                
Mr. Alper could not speak to  the matter. He relayed that he                                                                    
would be  briefing the administration  on the  components of                                                                    
the bill. There was not currently an official position.                                                                         
                                                                                                                                
Senator  Hughes   asked  about  the  timeframe   and  delays                                                                    
involved in the issuing  of certificates. She asked whether,                                                                    
once  DNR has  completed its  work, the  considerable delays                                                                    
were justified.                                                                                                                 
                                                                                                                                
Mr.  Alper  relayed  that  the  delays  from  DOR  were  not                                                                    
necessarily  related  to  DNR   data  analysis  delays.  The                                                                    
43.55.025  credits were  sometimes  pushed behind  something                                                                    
with a  tighter deadline.  The credits  had at  times fallen                                                                    
behind by a  few months or a year. The  credits were issued,                                                                    
but  were  subject  to  future  review.  When  auditing  the                                                                    
underlying tax  year, any missing  piece could  be reviewed.                                                                    
The exploration  credits do not  carry that  same authority.                                                                    
The credits  were considered a final  determination. So long                                                                    
as the data  was received, the department was  able to issue                                                                    
the  certificate.   He  specified  that,  when   issuing  an                                                                    
exploration  credit, the  tax division  had considered  it a                                                                    
final determination  and had therefore a  higher standard to                                                                    
ensure that  everything had been  paid and was as  it should                                                                    
be.  That led  to  the creation  of  the certificate,  which                                                                    
acted  as a  placeholder  in the  line  to receive  credits.                                                                    
House  Bill   111  said  that  companies   would  receive  a                                                                    
certificate from  day 1,  which did not  have a  cash value,                                                                    
but gave them a position in line to receive credits.                                                                            
                                                                                                                                
3:38:34 PM                                                                                                                    
                                                                                                                                
Senator Hughes  appreciated the fact  that the  division was                                                                    
more deliberative with exploration  credits due to the final                                                                    
audit question. She  understood that there was  only about a                                                                    
four-page application and should be easy to review.                                                                             
                                                                                                                                
Mr.  Alper   stated  that   the  application   document  was                                                                    
relatively  brief, and  the  time-consuming  portion of  the                                                                    
process was examination of receipts.                                                                                            
                                                                                                                                
                                                                                                                                
Co-Chair  Hoffman referred  to the  chart on  page 5  of the                                                                    
fiscal note.  He remarked  on a  big swing  in 2027  of over                                                                    
$150 million from $60 to $80 per barrel.                                                                                        
                                                                                                                                
Mr. Alper  specified that the  $40 per barrel oil  price was                                                                    
where the major  producers were losing money.  In the status                                                                    
quo, if a major producer had  an operating loss and was able                                                                    
to carry it  forward into the next year, they  could use the                                                                    
loss credits to  reduce their payments to  below the minimum                                                                    
tax to  zero. Due to  the change in  the bill, there  was no                                                                    
more loss credit, only a  carry forward. The floor hardening                                                                    
provision  does not  have  much impact  at  higher or  lower                                                                    
price points. There  was an unusual circumstance  in the $60                                                                    
set,  with  positive numbers  in  later  years and  negative                                                                    
numbers  in  earlier  years.  The  modelling  contained  the                                                                    
presumption  that  there  would be  reduced  production  and                                                                    
increasing  costs so  that operating  costs increase  at $60                                                                    
oil in 2025 and 2026,  assuming 350,000 barrels per day. The                                                                    
same impacts at  $60 per barrel oil were seen  as at $40 per                                                                    
barrel oil in later years. It  was something of an oddity in                                                                    
the forecast.                                                                                                                   
                                                                                                                                
3:42:53 PM                                                                                                                    
                                                                                                                                
Senator von  Imhof referred  to page 4  of the  fiscal note.                                                                    
She pointed  to line A in  the middle of the  page and asked                                                                    
what the line referred to.                                                                                                      
                                                                                                                                
Mr. Alper  replied that the  line reflected  the expectation                                                                    
that  under  the  status  quo  companies  were  earning  NOL                                                                    
credits. The line  referred to companies who  were not major                                                                    
producers.  He  stated that  the  losses  would be  cashable                                                                    
under current  law, and  the cash  credit was  eliminated in                                                                    
the present bill. The main  change from the bill was getting                                                                    
the state out  of the business of buying  cash credits. That                                                                    
primary change  was reflected in  Line A. It showed  the sum                                                                    
total of the credits the state would not be purchasing.                                                                         
                                                                                                                                
Senator von Imhof  referred to the "NOTE" box  on the bottom                                                                    
of page 4 of the  fiscal note. "…assume that all outstanding                                                                    
credits   earned  before   1/1/18  …   are  funded   through                                                                    
appropriation  and purchased  by the  state." She  asked for                                                                    
clarification.                                                                                                                  
                                                                                                                                
Mr. Alper  referred to  the [DOR]  Revenue Sources  book and                                                                    
the  spring  forecast. There  was  a  very large  number  in                                                                    
expected  demand  for credits  in  FY  18. The  line  stated                                                                    
current demand,  plus the demand carried  over following the                                                                    
governor's veto,  and was over  $1 billion.  The expectation                                                                    
was that  those would be paid  so that by getting  those off                                                                    
the  book in  2018,  the demand  for credits  in  FY 19  was                                                                    
limited  to the  credits coming  onto  the books  in FY  19,                                                                    
primarily loss credits for work  done in 2017 due to natural                                                                    
delays   in  processing.   The  sentence   meant  that   the                                                                    
legislation  was not  changing the  underlying forecasts  in                                                                    
the Revenue  Source book, it  was simply stating how  it was                                                                    
changed with the passage of the bill.                                                                                           
                                                                                                                                
3:45:41 PM                                                                                                                    
                                                                                                                                
Co-Chair  MacKinnon wanted  to  clarify for  the record  the                                                                    
interaction of the sliding scale  per barrel adjustment with                                                                    
other 43.55.024  credits. Senator von Imhof  had referred to                                                                    
this and  Mr. Alper had  restated his perspective.  She made                                                                    
clarifying remarks:                                                                                                             
                                                                                                                                
     There was  some questions  following my remarks  at the                                                                    
     beginning of  yesterday's hearing  as to the  intent of                                                                    
     the CS  in handling the  sliding scale per  barrel with                                                                    
     other  .024 adjustments.  The  Majority  in the  Senate                                                                    
     supports  and  stands  by  SB   21  and  the  increased                                                                    
     production that has resulted  from this legislation. At                                                                    
     this time,  we are choosing  to not take a  position on                                                                    
     the advisory  opinion that was issued  in December 2016                                                                    
     and  in  March  2017  by  the  Department  of  Revenue.                                                                    
     Therefore, the  CS does  not change  that if  a sliding                                                                    
     scale  per   barrel  adjustment  is  used,   the  small                                                                    
     producer tax credit  and the new oil  per barrel credit                                                                    
     cannot  reduce  taxes  below  the  minimum  tax  or  it                                                                    
     applies  to zero.  This is  not to  be construed  as an                                                                    
     endorsement   of  the   advisory  bulletin,   should  a                                                                    
     taxpayer  elect  to  challenge that  in  court  in  the                                                                    
     future, but instead  as a desire to  end refundable tax                                                                    
     credits and make only the  changes necessary in our tax                                                                    
     code to accomplish that purpose.                                                                                           
                                                                                                                                
Co-Chair MacKinnon asked Mr. Alper whether that was clear.                                                                      
                                                                                                                                
Mr.  Alper  remarked  that   Co-Chair  MacKinnon  and  other                                                                    
members had  made clear  on the  record their  concerns with                                                                    
the advisory bulletin.                                                                                                          
                                                                                                                                
3:47:37 PM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon  went on  to clarify  for the  record the                                                                    
use of credits against prior year's liabilities:                                                                                
                                                                                                                                
     In Sections  4, 7, and 14  in Version V, the  intent is                                                                    
     that credits  earned in  any year  may be  used against                                                                    
     prior  year's outstanding  liabilities with  Department                                                                    
     of Revenue related to oil  and gas production tax. That                                                                    
     was  a singular  "prior  year." The  intent  is not  to                                                                    
     allow a  company to refile  prior year taxes  that were                                                                    
     previously  paid  for  the  purposes  of  applying  for                                                                    
     credits  and then  ask the  state for  a refund  on the                                                                    
     original tax  payment. However, if  a company  amends a                                                                    
     return and  owes additional tax, we  intend the company                                                                    
     is able to pay that  additional liability with credits.                                                                    
     Companies should not  be able to use credits  to use to                                                                    
     pay something that has already been paid.                                                                                  
                                                                                                                                
Co-Chair MacKinnon  again asked  Mr. Alper whether  what she                                                                    
had read was clear.                                                                                                             
                                                                                                                                
Mr. Alper  stated that the  clarifying statement  was clear.                                                                    
He referred  to Sections 4, 7,  and 14 of the  current bill.                                                                    
He stated  that although  it seemed  counter-intuitive, they                                                                    
wanted to  close the door  on any possibility for  a company                                                                    
to be  able to  use credits  to pay a  tax that  had already                                                                    
been paid, then use credits to receive a refund.                                                                                
                                                                                                                                
3:49:21 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
4:05:36 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Vice-Chair Bishop MOVED to ADOPT conceptual Amendment 1.                                                                        
                                                                                                                                
Co-Chair MacKinnon OBJECTED for discussion.                                                                                     
                                                                                                                                
Ms. Cramer discussed Amendment 1:                                                                                               
                                                                                                                                
     Page 19, line 1, following "year"                                                                                          
     Insert "and any credits under this chapter,"                                                                               
                                                                                                                                
     Page 19, line 2, following "(e)"                                                                                           
     Delete "before the application of any credits under                                                                        
     this chapter"                                                                                                              
                                                                                                                                
     Page 19, line 3, following "(f)"                                                                                           
     Insert "before the application of any credits under                                                                        
     this chapter"                                                                                                              
                                                                                                                                
Ms. Cramer  informed that  there had  been a  drafting error                                                                    
and the intent was the same.                                                                                                    
                                                                                                                                
Co-Chair MacKinnon  WITHDREW her  OBJECTION. There  being NO                                                                    
further OBJECTION, Amendment 1 was ADOPTED.                                                                                     
                                                                                                                                
Co-Chair MacKinnon  informed that the committee  had checked                                                                    
with  Mr.   Alper  on  the  conceptual   amendment  and  had                                                                    
confirmed  that  there was  no  issue.  She stated  for  the                                                                    
record that he was nodding his head.                                                                                            
                                                                                                                                
Vice-Chair  Bishop  MOVED to  report  SCS  CSHB 111(FIN)  as                                                                    
amended  out of  Committee  with individual  recommendations                                                                    
and the accompanying fiscal note.  There being NO OBJECTION,                                                                    
it was so ordered.                                                                                                              
                                                                                                                                
SCS CSHB 111(FIN)  was REPORTED out of committee  with a "do                                                                    
pass" recommendation and with  one forthcoming fiscal impact                                                                    
note from the Department of Revenue.                                                                                            
                                                                                                                                
4:08:28 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
4:10:40 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair MacKinnon and Vice-Chair Bishop extended thanks to                                                                     
staff and agencies for their assistance.                                                                                        
                                                                                                                                
Senator Hughes thanked Senator Cathy Giessel and her staff.                                                                     
                                                                                                                                
ADJOURNMENT                                                                                                                   
4:11:59 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 4:12 p.m.                                                                                          
                                                                                                                                
                                                                                                                                

Document Name Date/Time Subjects
SB 34 DOA Response Memo 4.12.17 LR.pdf SFIN 5/12/2017 9:00:00 AM
SB 34
SB 34 Amendments 1 and 2 MacKinnon.pdf SFIN 5/12/2017 9:00:00 AM
SB 34
HB 111 v V Sectional Analysis.pdf SFIN 5/12/2017 9:00:00 AM
HB 111
HB 111 Senate Finance V 20170512 - Fiscal Impact 2017 Spring Forecast.pdf SFIN 5/12/2017 9:00:00 AM
HB 111
HB 11 Summary of Changes B to V.pdf SFIN 5/12/2017 9:00:00 AM
HB 111 Work Draft version V.pdf SFIN 5/12/2017 9:00:00 AM
HB 111
HB 111 DNR - Size of Tax Credits Surveys.pdf SFIN 5/12/2017 9:00:00 AM
HB 111
HB 111 Amendment 1 MacKinnon.pdf SFIN 5/12/2017 9:00:00 AM
HB 111